Hedge Fund Third Party Marketing

Third Party Marketing, in the context of a hedge fund definition, refers to a set of sales and marketing services offered to hedge fund managers by specialized marketing firms. Provided services may include the production of marketing materials such as pamphlets and spreadsheets, the management of advertising in media, analyzing investment market statistics, and customer relations management. Third party marketing is also crucial to the hedge fund industry due to regulations that forbid hedge fund managers and managers of other unregistered funds from advertising directly to investors. These firms are essential to raising capital for fund startups and to publicizing the fund in order to grow the investor base. By building up hedge fund specific marketing expertise and contacts, third party marketers provide hedge fund managers with the ability to reach out to investors much more efficiently than would be possible for a fund attempting to publicize itself individually. Third party marketing firms in essence create a private marketplace for hedge fund investments.

The role of third party marketing firms is to serve as a bridge between fund managers and potential investors. Third party marketing firms can offer recommendations, contact assistance, and comparative ratings of hedge fund risk ratings, performance in the market, and fee structures. By helping to determine hedge funds worth investing in, third party marketing firms provide increased confidence to investors which, in turn promotes greater participation in hedge funds. The collecting and publishing of hedge fund management data and performance statistics also provides to the investor a level of transparency that would otherwise not be available based on government regulation.

In exchange for raising assets and managing client relations, third party marketing firms typically charge a percentage of both the management and performance fees received from assets facilitated by the third party marketing firm. This amount is generally around twenty percent, but may be much higher for smaller hedge fund companies, to compensate for the expectation of smaller returns. In addition to the fees levied as a percentage of fees paid by investors, third party marketing firms may charge a monthly retainer to be paid by the hedge fund management company. In the case of smaller (and often younger) hedge funds, or funds still in the start-up stages, the retainer may take the form of equity in the fund itself.

Third party marketing of hedge funds is very similar to another service offered by some firms, known as capital introduction. Both third party marketing firms and capital introduction firms will introduce potential clients to hedge funds seeking investors, performing the dual service of marketing the funds to the customers and providing recommendations as to the profitability of those funds backed by the reputation of the firm. However, while helping funds to make contact with clients is generally the extent of a capital introduction firm's service offering, third party marketers will often work with the client and the fund to help close the deal, and will also offer fund progress updates and consultation services throughout the life of the investment.

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